To be excluded from income when redeemed, the bond must be used to pay for qualified education expenses for yourself, your spouse or a dependent. (aaii.com)
With an ESA, the money must be used to pay qualified education expenses for the account's beneficiary. (capitaloneinvesting.com)
If distributions are made in excess of qualified education expenses, and don't fall under a few notable exceptions, income tax and a 10 % penalty will apply. (HyllandCapital.com)